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Capitalization Of Leased Equipment

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Koby Co. entered into a capital lease with a vendor for equipment on January 2 for seven years. The equipment has no guaranteed residual value. The lease required Koby to pay 500,000 annually on January 2, beginning with the current year. The present value of an annuity due for seven years was 5.35 at the inception of the lease. What amount should Koby capitalize as leased equipment?

a) 500,000
b) 825,000
c) 675,000
d) 500,000

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Solution Summary

This solution explains the amount that Koby Co. should capitalize for leased equipment.

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Please note: Choices A and D. are the same!

The answer should be:

2,675,000

This is not one of the choices, so I ...

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